The mandate of a central bank is not only to ensure price stability but also to promote growth and generate employment, Finance Minister P. Chidambaram said here on Monday.
Stating he did not expect any hike in interest rates by commercial banks, the Minister said they had enough funds to meet credit demands, and that the onus of coming up with large investment projects rested with industry.
“All over the world, thinking is changing. The mandate of a central bank must not only be price stability. The mandate of a central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment,” he said.
Mr. Chidambaram’s statement comes on the eve of the Reserve Bank of India’s first quarter monetary review in which the central bank is expected to address several conflicting concerns, including volatile exchange rate, liquidity crunch and slowing growth.
RBI Governor D. Subbarao had last week met Prime Minister Manmohan Singh and Mr. Chidambaram and is believed to have discussed the current macro-economic situation.
“I have tried to argue that while I acknowledge that the central banks’ mandate is price stability, price stability must be seen as part of larger mandate of growth and employment,” said Mr. Chidambaram while speaking at a function here.
Admitting, the world over governments and central banks had not been on the same page, he said, “in fact this antagonism between the central bank and the government is very functional antagonism, a healthy antagonism. I am not saying it is unhealthy, it is perhaps healthy.’’
The RBI has been maintaining a tight monetary stance overlooking the pressure from the government as well as the industry for a steep cut in interest rate to promote sagging growth.
“Tomorrow, the RBI Governor will make a quarterly review policy statement. So let us wait for the Governor statement which will throw more clarity on the subject,” Mr. Chidambaram said.
The Minister, however, sounded confident that interest rates of commercial banks would remain stable.
“I do not expect these (RBI) liquidity measures to result in an increase in the bank lending rates. In fact, bank rates have been stable and all chairpersons of banks have told me that they have no plans to increase lending rates. So, the current interest rates will remain. I can’t say whether they will come down. But I am almost certain they will not go up,” the Finance Minister said.
Mr. Chidambaram assured industry that their credit needs would be met by banks.
“Industry must come to banks and make big demands for credit. I want you to talk about big industries and where you would come and demand credit of Rs.300-400 crore. That’s not coming. If it comes, banks have assured me that enough credit will be provided,” Mr. Chidambaram added.
To a query on the rupee, he said, the depreciation was because of speculations and not due to any radical change in the Indian economy.
On the current account deficit (CAD), Mr. Chidambaram said in 2012-13 it was fully financed by the government
Keywords: RBI, monetary policy review, economic growth, Indian economy, credit policy review, India economic policy, rupee depreciation, inflation, liquidity adjustment facility, rupee value, RBI liquidity curbs, IIP